Crypto tax loss harvesting is a powerful strategy to reduce your tax burden and make the most of your cryptocurrency investments. The concept is simple: by selling underperforming crypto assets at a loss, you can offset gains from other investments and potentially lower your taxable income.
While this technique is common in traditional investing, the high volatility and unique tax rules of the crypto market make it especially valuable for crypto traders.
In this tax guide, we’ll explain everything you need to know about crypto tax loss harvesting: how it works, what to keep in mind as a crypto investor in the UK, when to use it, and how to track and report your losses. By the end, you’ll have a clear understanding of how to optimize your tax strategy and how Blockpit can simplify the process.
<div fs-richtext-component="info-box" class="info-box protip"><div class="flex-info-card"><img src="https://assets-global.website-files.com/65098a145ece52db42b9c274/650c6f4b151815fb0be48cec_Lightning.svg" loading="lazy" width="64" height="64" alt="" class="icon-info-box"><div fs-richtext-component="info-box-text" class="info-box-content"><p class="color-neutral-800">Understanding the crypto tax rules in the UK can be challenging. Blockpit simplifies this process by offering a powerful tool to automatically identify tax loss harvesting opportunities in your portfolio and ensure compliance with HMRC crypto tax laws. Sign up for free to get started today!</p></div></div></div>
Ready to take control of your crypto taxes? Let’s get started!
Is Tax Loss Harvesting Allowed for Crypto?
Yes, tax loss harvesting is allowed for cryptocurrency in the UK, but it comes with specific rules and considerations under HMRC guidelines.
Crypto assets are treated as property for tax purposes in the UK, which means gains and losses from their disposal are subject to Capital Gains Tax (CGT).
This means you can offset losses from one transaction against gains from another, potentially reducing your overall tax liability.
Keep in mind that tax loss harvesting is only allowed when there is a legitimate disposal of the crypto asset, such as selling, swapping, or gifting it (except to a spouse or civil partner).
Losses cannot be claimed for assets that you still hold or intend to repurchase immediately without adhering to specific rules.
What types of gains can be offset by crypto losses?
Harvested losses from crypto transactions can be used to offset Capital Gains on a range of assets, as cryptocurrency is treated as a taxable asset class under Capital Gains Tax (CGT) rules in the UK.
Offsetting Gains from Other Cryptocurrencies
If you made gains on one type of cryptocurrency but incurred losses on another, the losses can be used to offset the gains.
For example:
You sell Bitcoin at a profit but sell Ethereum at a loss in the same tax year.
The loss from Ethereum can reduce your taxable gain from Bitcoin.
Offsetting Gains from Stocks and Share
Crypto losses can also offset gains from the sale of stocks and shares.
For example:
If you profit from selling shares of a company but incurred losses from crypto disposals, the crypto losses can reduce your overall CGT liability on the stock sale.
Offsetting Gains from Property (Other than Your Main Home)
Losses from crypto disposals can offset gains from the sale of property, such as a second home or a rental property, which are subject to CGT. This does not include your main residence, which is typically exempt from CGT.
Offsetting Gains from Other Taxable Assets
Crypto losses can offset gains from the sale of any taxable assets, such as:
- Precious metals (e.g., gold, silver)
- Collectibles (e.g., art, antiques)
- Business assets (e.g., machinery, intellectual property)
Things to Keep in Mind
Losses must first be applied to gains in the same tax year. If there are no gains or if losses exceed gains, the unused portion can be carried forward to offset gains in future years. These carried-forward losses must be reported in your tax return to remain eligible.
Additionally, capital losses, including those from crypto, cannot offset income tax liabilities. They are only applicable to gains subject to CGT.
The UK also provides an annual CGT allowance (£6,000 for 2024/25), which allows a certain amount of gains to be tax-free. Crypto losses may not be required if your gains are below this allowance.
Carrying Excess Losses to Future Tax Years
If your crypto losses exceed your gains in a tax year, you don’t lose out—these excess losses can be carried forward to offset capital gains in future tax years.
To take advantage of this, you must report the losses in your Self-Assessment tax return for the year in which they occurred, even if you don’t have any gains to offset at the time.
Once registered, these losses can be used indefinitely to reduce your taxable capital gains in subsequent years.
For example, if you incur significant losses during a crypto market downturn, you can use them to minimize your tax liability on gains when the market recovers.
<div fs-richtext-component="info-box" class="info-box protip"><div class="flex-info-card"><img src="https://assets-global.website-files.com/65098a145ece52db42b9c274/650c6f4b151815fb0be48cec_Lightning.svg" loading="lazy" width="64" height="64" alt="" class="icon-info-box"><div fs-richtext-component="info-box-text" class="info-box-content"><p class="color-neutral-800">Proper record-keeping and timely reporting are essential to ensure these losses remain available for future use.</p></div></div></div>
What’s the maximum amount of losses that can be harvested?
There is no maximum limit to the amount of capital losses, including crypto losses, that can be harvested in a tax year.
You can harvest and report as many losses as you incur in a tax year, provided they result from genuine disposals of assets (e.g., selling, swapping, or gifting crypto).
<div fs-richtext-component="info-box" class="info-box"><div class="flex-info-card"><img src="https://assets-global.website-files.com/65098a145ece52db42b9c274/650c6f4cef4c34160eab4440_Info.svg" loading="lazy" width="64" height="64" alt="" class="icon-info-box"><div fs-richtext-component="info-box-text" class="info-box-content"><p class="color-neutral-800">Keep in mind: Losses can only offset gains up to the amount that brings your total taxable gains to £0. You cannot create a negative capital gains position to claim a tax refund. Instead, any unused losses can be carried forward to future tax years.</p></div></div></div>
If your gains are already below the annual CGT allowance (£6,000 for 2024/25), harvesting additional losses in that tax year won’t provide an immediate tax benefit. However, these losses can still be carried forward and used in future years.
When is the Best Time for Tax Loss Harvesting?
Timing is key to making the most of tax loss harvesting. The best time to use this tax optimization strategy depends on your financial situation and local tax rules, but some times and market situations are better suited for it than others.
1. Toward the End of the Tax Year
Tax loss harvesting is often most effective toward the end of the tax year (the UK tax year runs from 6 April to 5 April).
By this time, you will have a clearer picture of your total gains and losses for the year, allowing you to strategically sell underperforming crypto assets to offset taxable gains.
<div fs-richtext-component="info-box" class="info-box protip"><div class="flex-info-card"><img src="https://assets-global.website-files.com/65098a145ece52db42b9c274/650c6f4b151815fb0be48cec_Lightning.svg" loading="lazy" width="64" height="64" alt="" class="icon-info-box"><div fs-richtext-component="info-box-text" class="info-box-content"><p class="color-neutral-800">Tax planning is typically more predictable at the end of the tax year since you have a clearer picture of your gains, losses, and overall tax liability. Harvesting losses before the deadline can help you fine-tune your tax strategy.</p></div></div></div>
Want to learn more? Read this: 5 End-of-Year Hacks to Reduce Crypto Taxes
2. During Market Downturns
Market downturns provide ideal conditions for tax loss harvesting.
Volatility in the cryptocurrency market often leads to steep declines in asset values.
<div fs-richtext-component="info-box" class="info-box protip"><div class="flex-info-card"><img src="https://assets-global.website-files.com/65098a145ece52db42b9c274/650c6f4b151815fb0be48cec_Lightning.svg" loading="lazy" width="64" height="64" alt="" class="icon-info-box"><div fs-richtext-component="info-box-text" class="info-box-content"><p class="color-neutral-800">Be mindful of HMRC’s 30-day rule, which prevents you from repurchasing the same asset within 30 days if you wish to lock in the loss.</p></div></div></div>
3. Before Regulatory Changes
Tax laws regarding cryptocurrency are evolving. If HMRC is considering changes, such as revisions to the wash sale rule for crypto or capital gains tax rates, it may be wise to act proactively.
4. During Portfolio Rebalancing
Rebalancing your portfolio—whether to diversify or adjust your risk exposure—presents another opportunity for tax loss harvesting.
Selling underperforming crypto assets as part of the rebalancing process allows you to harvest losses while aligning your investments with your long-term strategy.
5. After Permanent Losses or Failed Investments
If an asset is unlikely to recover, such as after a rug pull, a project collapse, or poor investments in highly speculative assets like meme coins, it’s a good time to harvest losses.
Holding onto a near-worthless asset doesn’t provide any financial benefit, but realizing the loss can improve your tax situation.
For example, if you invested in a failed meme coin or a project that turned out to be a scam, harvesting the loss ensures that you extract some financial advantage from a bad investment.
Wash Sale Rules / Bed and Breakfasting
HMRC does not apply the traditional "wash sale rule" seen in countries like the United States. Instead, HMRC uses specific "bed and breakfasting" rules to govern how crypto disposals and reacquisitions are treated for Capital Gains Tax (CGT).
These rules are designed to prevent investors from artificially creating losses by selling and quickly repurchasing the same asset.
Same-Day Rule
If you sell crypto and repurchase the same asset on the same day, HMRC treats the transactions as part of the same pool. The sale and repurchase are matched, and no capital loss is realized. This prevents loss harvesting through immediate buybacks.
30-Day Rule
If you sell crypto and repurchase the same asset within 30 days, the repurchase is matched with the sale to calculate the gain or loss. This means you cannot lock in a loss if you repurchase the same cryptocurrency within this 30-day window.
To avoid the 30-day rule while maintaining a similar market position, you can sell one cryptocurrency and reinvest in another (e.g., sell Bitcoin and buy Ethereum).
The Pooling Rule
For assets not repurchased within 30 days, the sold cryptocurrency is removed from your section 104 pool, which aggregates the cost basis of all crypto holdings of the same type. Losses or gains are then calculated based on the average cost of the remaining pool.
Other Things to Keep in Mind
Track Everything
Keeping track of dates, purchase prices, sale prices, and transaction fees for each trade is key for accurate crypto tax loss harvesting. HMRC may request an overview of your transactions before accepting your tax filings.
<div fs-richtext-component="info-box" class="info-box protip"><div class="flex-info-card"><img src="https://assets-global.website-files.com/65098a145ece52db42b9c274/650c6f4b151815fb0be48cec_Lightning.svg" loading="lazy" width="64" height="64" alt="" class="icon-info-box"><div fs-richtext-component="info-box-text" class="info-box-content"><p class="color-neutral-800">Blockpit’s Crypto Tax Calculator compiles all of your relevant transactions in an easy-to-understand format that can be included with your tax filing. </p></div></div></div>
Transaction Fees Matter
Crypto trading often comes with fees, which can significantly impact your profit or loss calculations. Ensure that you account for these fees when determining the actual loss or gain from a trade.
<div fs-richtext-component="info-box" class="info-box protip"><div class="flex-info-card"><img src="https://assets-global.website-files.com/65098a145ece52db42b9c274/650c6f4b151815fb0be48cec_Lightning.svg" loading="lazy" width="64" height="64" alt="" class="icon-info-box"><div fs-richtext-component="info-box-text" class="info-box-content"><p class="color-neutral-800">Blockpit automatically detects and categorizes fees to accurately reflect your true gains and losses.</p></div></div></div>
Non-Taxable Events and Exemptions
Some transactions, like crypto-to-crypto exchanges or specific types of wallet transfers, may not be taxable in certain jurisdictions. Knowing what counts as a taxable event will help you avoid unnecessary tax planning.
<div fs-richtext-component="info-box" class="info-box protip"><div class="flex-info-card"><img src="https://assets-global.website-files.com/65098a145ece52db42b9c274/650c6f4b151815fb0be48cec_Lightning.svg" loading="lazy" width="64" height="64" alt="" class="icon-info-box"><div fs-richtext-component="info-box-text" class="info-box-content"><p class="color-neutral-800">Blockpit supports the specific HMRC crypto tax rules to provide fully compliant crypto tax reports.</p></div></div></div>
How To Report Crypto Losses on Your Tax Return
To utilize your crypto losses for tax purposes, you must report them to HMRC. This can be done through your Self Assessment tax return:
Self Assessment Tax Return (SA100): This form covers your income and gains. If you have capital gains or losses, indicate this in the appropriate section.
Capital Gains Summary (SA108): This supplementary form provides details of your capital gains and losses. Enter your crypto losses in the relevant boxes, ensuring all figures are in pounds sterling.
If you're not already registered for Self Assessment, you can do so on the HMRC website. The deadline for online submissions is 31 January following the end of the tax year.
Learn more about it here: How to report crypto on your tax return.
Crypto Tax Loss Harvesting Software
Blockpit makes tax loss harvesting simple and efficient, with an average of 2,395€ in identified tax-saving opportunities!
With our powerful tax optimization feature, you can easily identify opportunities to harvest losses and reduce your tax liability. Our tool automatically scans your portfolio to highlight underperforming assets that could be sold for a tax benefit, saving you hours of manual analysis.
Don’t leave money on the table! Create your Blockpit account today and see how much you could save.